Home Loan Insurance

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In a home loan insurance plan only the home loan is insured and not the home. This form of insurance normally covers the amount that has to be paid to the home loan issuer. These policies normally take into account the amount that has to be paid to the home loan provider and not the amount that has already been paid.

Premium of Home Loan Insurance

The premiums of the home loan insurance plans depend on the following factors:
  • The age of the insured – the older he or she is the greater the premium is
  • The loan tenure – the more the repayment period the more the premium
  • The amount of loan – the greater the loan the more is the premium
  • Medical history of the borrower – if they are in good health the premium will be lower but if they have had ailments like heart problems or other risky issues then the premium will go up

Home loan insurance – Things to look out for

Following are certain important factors that need to be kept in mind while looking out for a home loan insurance policy:

Death benefit or death by accident

The first thing that a proposer needs to see is whether it will offer death benefit or death by accident. In case of accidental death plans the family does not face any problem with loan repayment even if the insured passes away owing to an accident.

Does it have permanent disability benefit?

The proposers should also see if the plan has a permanent disability facility in it or not. In these cases if the insured suffers from some permanent disability then their loan payment is taken care of.

No need to run for a home loan insurance plan

The home loan providers have tie ups with the insurers in order to provide their borrowers this benefit. So ideally the proposers need not run from pillar to post for these plans. The home loan issuers normally make all the arrangements and provide the necessary forms to the insured.

How can the benefits be claimed?

As and when the payment needs to be made, it will be provided to the loan issuer by the insurance company itself. In order to claim the plan the medical certificate of disability or death certificate will have to be handed over to the home loan provider.

Are these facilities offered for free?

Some banks and home loan providers offer these facilities for free but the other companies charge premiums for the same. These plans are normally offered for as long as the loan is being repaid and against the loan amount. However, the proposers need to check out if the loan has any limits.

From whom should the plan be availed?

In these plans the insurers want the premium to be paid at one go but the home loan companies are normally in favor of providing the insured with more options. The loan borrower can either pay the premium money up front or get it done through the home loan issuer.

How is the payment done and what are the ramifications?

In the later cases the borrower has to pay the money back to the home loan company as the amount is included in the estimated monthly installments and it becomes part of the same.

The latter option is evidently costlier as the interest payable on the premiums gets added to the EMIs. There is another important factor in this regard – the health check-ups. There are certain companies that follow this procedure while there are others that do not.

How are the benefits offered?

Often the banks and home loan issuers do not offer these facilities if the borrower passes away within a specified time period of taking the loan. However, deaths by accident are not regarded as situations that cannot be covered. These policies also do not cover death owing to suicide.

What happens if there is prepayment?

In case there is a prepayment, it is taken for granted that the borrower has paid off the insurance premium for the whole term period of the loan. The borrower needs to find out whether they will be receiving any payments as such.

What happens for joint loans?

In case of joint loans the applicants need to obtain separate policies. One application form will be used and it will have the names of the two customers – the premiums will get doubled as well.

There are a few companies that provide discounts on premiums in these cases. In these policies, if one of the applicants passes away then the insurer clears the loans.

Are tax benefits available?

Under normal circumstances the premium of these policies can get one income tax benefits but if they are grouped with the EMIs then the facility might not be available.

In case there is a home loan without any insurance the borrowers can ask the companies for insurance for the remainder of the time period. If the loan provider is not ready to do it then they can ask insurance providers for such facilities.

Benefits of Home Loan Insurance

The major advantage of having home loan insurance is that provides a semblance of assurance in the present times when the interest rates and real estate prices have soared high.

The founder of Ladder 7 Financial Advisories and an official financial planner, Suresh Sadagopan, has stated that if the main borrower passes away and the family is unable to pay the EMIs then it may have to vacate the premises. A home loan insurance plan can come in handy in such circumstances.

Types of Home Loan Insurance

There are two major types of home loan insurance – the home loan protection plans or HLPPs and the pure term cover policies. Financial advisors normally ask that people go for the pure term covers instead of the HLPPs.

Home loan protection plans

The Managing Director of Optima Money Managers and a registered financial planner, Pankaj Mathpal, has said that the HLPPs are often sold along with the home loans and offer a sum assured that acts as the risk cover. He says that with the reduction in the payable loan amount, the cover also comes down in volume.

Term plans

Mathpal also states that with a term plan the full sum assured will be provided to the family at the end of the term. The family can also make some savings even after paying off the entire loan amount.

Comparison of HLPPs and term plans

Suresh Sadagopan states that previously the HLPPs were less expensive than the term plans but with the arrival of the web based term insurance plans has just changed the scenario.

A certified financial planner for Transcend India, Karthik Jhaveri, has stated that the major advantage of a term plan over an HLPP is that the coverage remains the same for a specified period of time.

Financial experts feel that if someone can avail a regular term plan in their early years they will be required to pay lower premiums. Suresh Sadagopan says that people can actually use the money saved in investment instruments that promise a high rate of growth like the equity linked savings schemes (ELSS).

These also have tax benefits and the money used in these is a better option that going for a bigger premium as per Sadagopan.

Top home loan insurance plans in India

The following table shows the leading home loan insurance plans available in India:

Loan provider Product name
ICICI Bank Home Safe Plus Home Assure
HDFC Life HDFC Home Loan Protection Plan
Citibank BSLI Group Asset Assure Plan

Last Updated on 10/04/2012